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Friends Provident International is part of the Aviva Group, and has more than 35 years’ international experience. Its heritage dates back over 300 years.
Friends Provident International develops savings, investment and protection solutions for customers in Asia and the UAE.
With offices in Dubai, Hong Kong, Singapore and the Isle of Man, they employ a staff of more than 500 worldwide.
The Friends Provident International Reserve Investment Bond is available on both a whole of life and capital redemption basis, to individual and corporate customers (including trusts) resident in many countries around the world.
These structures, used in the correct way, can be used to meet complex tax planning needs of clients.
The Friends Provident Reserve Investment Bond provides the investor with the ability to defer and plan taxation. Being able to hold assets in a tax-efficient environment and pay no tax on the capital increases or income distributions until a time specified by you and your financial adviser, can be an invaluable planning tool.
The Friends Provident Reserve Investment Bond has two key charging structures which are entirely dependent upon what is agreed and disclosed between you and your adviser.
The primary problems with this product mainly stem from these two key features: -
Firstly, we often see this used for investment purposes rather than tax planning purposes.
Secondly, we often find that the explicit and implicit costs associated with such an investment haven’t been fully disclosed, and in our view are high.
A knock on problem caused by this lack of charging clarity may be a lack of flexibility caused by illiquid/unsuitable assets or exit penalties.
Tax wrappers can be expensive if they are not justifiable by the individual’s tax circumstances; overseas they are also often opaque because there is often no regulatory requirement to disclose charges.
FPI Reserve Bond Key Features
Access to more than 150 funds – from some of the world’s leading fund managers – offering a reasonable choice of investments, although the underlying annual management fees can be expensive - and certainly higher than if accessing the fund manager directly.
The funds are risk rated and cover all of the major markets and asset classes.
Performance statistics are updated monthly, and fund prices updated daily on the fund fact sheets via FPI’s Fund Centre in an easy to use format.
Multi-currencies – can be denominated in US dollar, GB pound, Hong Kong dollar, Japanese yen, Swedish krona or Euro.
Eligibility – the FPI Reserve Bond is a whole of life assurance contract, issued by Friends Provident International.
It is available to most international investors outside the main regulated territories such as the UK, USA, and Australia.
Charges – if you’ve been recommended the FPI Reserve Bond, your financial adviser should provide you with an illustration and personal charging structure.
This will detail all charges that are taken from your investment.
Regrettably this does not always happen, or perhaps worse still, a cheaper version is illustrated, whilst a higher cost, less accessible version is sold.
FPI charge for setting up and administering the policy and offer the choice between two charging structures:
Establishment charge structure:
Annual policy charge structure:
Early surrender – If you cash in your policy during an initial charge period, an exit penalty will apply.
The amount of this charge will be equal to the outstanding initial charges. This charge will not apply if the initial charge is paid upfront.
Well, there's a 6 page brochure that covers them in depth - but even then you won't necessarily get to the bottom of them!
Here are just some of the highlights (if you have a Reserve, get an X-Ray Review™ and we'll tell you what your'e paying as we have to work it out on a case by case basis)...
Depending on which establishment charge period you choose, FPI will take an establishment charge either: on the start date of the policy or; on the first day of each calendar quarter during the establishment charge period.
The establishment charge is deducted from the General Transaction Account (GTA) in the policy currency and is based on the amount of money you invest, meaning it will not change as the value of your investment does.
Also meaning, there's a risk your IFA will encourage you to invest as much as possible so the establishment charge deducted is even more...
The standard establishment charges are:
Premium from = £50,000
Day one = 8.5%
Premium from = £1,000,000
Day one = 8.0%
Remember that penalties may apply if you cash-in your policy during the establishment charge period...
You will be charged an establishment charge on each additional premium you pay.
FPI will take a fixed amount on the first day of each calendar quarter for the lifetime of the policy.
It depends on the currency you save in - but in GBP it's £99.50 per quarter, every quarter for the lifetime of your policy...
Early cash-in charge:
If you cash-in your policy during an establishment charge period, an early cash-in charge equal to the outstanding establishment charges will apply.
Then there's the annual policy charge, initial charge, administration charge, dealing charge, asset exchange charge AND our favourite the ad hoc charge...
According to FPI, Reserve is an international investment plan suitable for customers with a lump sum to invest for a minimum of five years, who seek capital growth or regular withdrawals, or a combination of both.
Reserve is available to those who are aged 18 and over. If the plan has lives assured, the minimum age is 2 years old and at least one life assured must be 80 or younger.
Well, apart from the cost...here's what FPI say are the main risks to be aware of: -
What you get back in the future depends on how well the investments perform.
The value of the plan can go up and down. You could get back less than you’ve paid in.
We only guarantee the value if the capital redemption version is chosen and the plan is cashed in at the end of the 99-year fixed term.
When you cash in your plan, you may get back less than your illustration shows. This could happen for several reasons, for example, if:
– investment returns are lower than shown
– our charges are higher than shown
– you take out more money than shown.
Some assets carry a higher level of risk than others and may be subject to sudden and large falls in value. This could erode some or all of your capital.
If you or your investment adviser deal excessively and your portfolio value is relatively small, then the value of your Reserve plan may be eroded and the costs may be disproportionately high.
If you invest in an asset denominated in a currency different to the plan currency, the value can go up and down simply because of changes in the currency exchange rate.
Inflation will reduce the spending power of any money you get back in the future.
It’s an international lump-sum investment product that offers potential for capital growth over the medium to long term (five years +).
It has two plan options – whole of life and capital redemption. The whole of life version includes an element of life cover, whereas the capital redemption version provides a guaranteed maturity value.
It then has two investment options – collective investments and personalised assets.
It gives you access to the world’s investment markets through unit trusts, investment trusts and open-ended investment companies. The personalised assets version could also include international equities, fixed interest securities, structured notes and deposits.
It can provide you with regular withdrawals, although please note this will reduce your capital value. If the capital redemption version has been chosen, withdrawals will also reduce the guaranteed maturity value.
I can't believe you give this 3 stars? I've seen my lump-sum eroded by charge after fee after commission...
I know I was duped by an adviser, I'm clear on that, but he was only part of the problem. How can Friends Provident punt this product? The charges destroy your money.
Like many other offshore investment bonds, we have seen all too often the FPI Reserve Bond being used or sold to investors within QROPS and SIPPs.
This is done in order to generate more commissions for the salesman.
The FPI Reserve Bond should NOT be used within a QROPS or SIPP, because when you start to draw on your pension, then the charges may still apply on the original investment, which effectively means your charges will go up as the capital decreases - and will erode some of the remaining capital at a quicker rate.
Our advice is to incept such a plan only after receiving advice from a fully regulated UK qualified financial adviser, and to opt for a cleanly priced option without any form of establishment charge or lock-in period (zero-exit penalties).
If you already have a Reserve Offshore Investment Bond from Friends Provident International we strongly recommend you get a X-Ray Review™ conducted to give you the information you need to make a decision on the best way forward.
There's every chance you're paying far too much for an inappropriate product.